Despite the recent announcements of profits in the banking sector and the sizeable bonus payments that accompany this news (let’s not get into that!) one fact does remain.

It seems to be getting harder and harder to be accepted for a personal loan in the UK.

This is due to a number of factors as follows:

Purely and simply, banks have tightened their criteria for lending

There is a smaller pot of money that banks are using to lend out to customers

Previous credit records are being more closely scrutinised

Which to be honest is all underpinned by the fact that banks are looking to fundamentally change the structure and the risk reflected in their balance sheets. Having re-read this a number of times, your blogger is in danger of sounding like an ultra boring accountant, so lets look into what this actually means in more detail.

1. Banks are being asked by the coalition government (and the EU) to reduce the overall risks taken in their lending, to avoid a repeat of the recent financial crisis. In the longer term, this may see some banks be ‘split’ so that there retail divisions (everyday banking for you and I) are split from their investment arms.

NB: When the papers talk about ‘grotesque bonuses’ it is very rare for anyone in the Retail divisions to be in receipt of these substantial sums. Therefore, try not to get too angry with the customer services clerk who serves you in your local high street branch!

The banking crisis and bonus culture cannot be attributed to he or she!

2. In response to being asked to reduce overall risk, the executive boards of major banks have decided that the overall amount of money available to lend to individuals and to small and medium sized businesses should be reduced. This means that there is the same amount of people competing for a reduced pot of money.

Specifically in response to reducing the ‘risky’ lending, it is considerably easier to tighten up lending scorecards to personal customers and small businesses. These scorecards are basically a list of questions, where the responses are used to make decisions on granting a personal loan or approving an overdraft or credit agreement. For retail customers these scorecards can prove to be very accurate predictors of what constitutes a ‘good’ lending decision.

During the height of personal borrowing in the UK, these scorecards were ‘loosened’ slightly, which meant that banks accepted that there may be a higher volume of cases which default, in exchange for obtaining an increased overall lending pot (and increased interest payments to fuel profits).

3. Finally, the executive management of many of the large UK banks have decided to go ‘back to basics’ and instead of borrowing money from international markets, in order to lend to retail customers, they would go about things in the traditional way. Encourage more savers to deposit with them, prior to lending out a safer proportion of saver’s funds.

Whilst this is a noble response, it also doesn’t take a genius to work out that when the average savings deposit account on the high street pays less than 1% gross interest (and the UK inflation rate soars towards 5%), depositing funds into a high street bank is a less than attractive proposition.

So, where does this leave you, the borrower, looking to obtain funds to allow you to purchase that new car, or build the extension at the back of the house?